United States: SEC Updates Proxy Rule And Proxy Statement Interpretations

On May 11, 2018, the U.S. Securities and Exchange Commission's (SEC) Division of Corporation Finance (the Division) consolidated and updated its interpretations of the proxy rules and Schedules 14A and 14C. The interpretations, still grouped by Rule or Schedule section, but now in the question-and-answer format of the Division's other Compliance & Disclosure Interpretations (C&DI), replace the interpretations published in the Proxy Rules and Schedule 14A Manual of Publicly Available Telephone Interpretations and the March 1999 Supplement to the Manual of Publicly Available Telephone Interpretations (collectively, the Telephone Interpretations). In particular, C&DIs 124.01, 124.07, 126.02, 151.01, 161.03 and 163.01 reflect substantive changes to the Telephone Interpretations, while C&DIs 126.04, 126.05, 158.01 and 158.03 reflect technical revisions. The remaining C&DIs reflect only nonsubstantive changes to the Telephone Interpretations.

Substantive Changes

Question 124.01

Telephone Interpretation 9 stated that a proxy card could grant discretionary authority to a proxy holder to cumulate votes among directors without requiring disclosure of the discretionary authority in bold-faced type on the proxy card itself pursuant to Rule 14a-4(b)(1), as long as the proxy statement included appropriate disclosure of cumulative voting. However, the Telephone Interpretation did not expressly state what disclosure would be appropriate for granting such authority.

C&DI 124.01 provides, in contrast, that Rule 14a-4(b)(1) does require bold-faced disclosure on a proxy card for a grant of discretionary authority for cumulative voting in the election of directors. Accordingly, where security holders have cumulative voting rights, and applicable state law permits a proxy holder to exercise discretion to cumulate votes and does not require separate security holder approval with respect to cumulative voting, a registrant may provide that signed and returned proxy cards that do not specify voting choices will grant discretionary authority to a proxy holder to cumulate votes among director nominees, by indicating that the proxy holder will have such discretion in bold-faced type on the proxy card.

Question 124.07

Telephone Interpretation 7S provided a somewhat lengthy discussion of situations in which a security holder proponent has submitted a non-Rule 14a-8 proposal, but a registrant may still file a "plain vanilla" definitive proxy statement without first filing a preliminary proxy statement under Rule 14a-6 and the discussion in Section IV.D of SEC Release No. 34-40018 (May 21, 1998), and when a registrant may exercise discretionary proxy authority in connection with a matter submitted by a security holder in a manner consistent with Rule 14a-4(c)(2)(i).

C&DI 124.07 simplifies Telephone Interpretation 7S(a) (Telephone Interpretation 7S(b) is subject to only technical revision in C&DI 124.08) and clarifies that, if a registrant has received adequate advance notification of a non-Rule 14a-8 matter from a security holder pursuant to Rule 14a-4(c)(2), then the registrant may only avoid filing a preliminary proxy statement before filing a definitive proxy statement under Rule 14a-6 if the registrant may exercise discretionary authority on the matter pursuant to Rule 14a-4(c)(2), which, in turn, requires that (A) the registrant disclose in its proxy statement the nature of the matter and how the registrant intends to exercise discretionary authority if the matter were actually represented for a vote at the meeting, and (B) the proponent does not satisfy the requirements of  Rule 14a-4(c)(2)(i)-(iii), including providing the registrant with timely statements that the proponent intends to and has delivered a proxy statement and form of proxy to holders of at least the percentage of the company's voting shares required under applicable law to carry the proposal.

Question 126.02

Telephone Interpretation 11 stated that, notwithstanding a literal reading of Rule 14a-6(a), a registrant would not be required to file a preliminary proxy statement before filing a definitive proxy statement for a proposed corporate name change to delete the surname of a long-dead founder that bore no relation to a change in the present membership of the board of directors, given the reason for the name change proposal and the purpose of the exclusions from the preliminary proxy statement filing requirements "to relieve registrants and the Commission of unnecessary administrative burdens," as stated in SEC Release No. 34-25217 (Dec. 21, 1987).

C&DI 126.02 simplifies the prior interpretation and clarifies that, consistent with the underlying purpose of the exclusions from the preliminary proxy filing requirement, as set forth in SEC Release No. 34-25217, a change in the registrant's name, by itself, does not require the filing of a preliminary proxy statement. Notably, the new interpretation does not refer to the reason for a name change.

Question 151.01

Telephone Interpretation 9S stated that Note A to Schedule 14A requires that information called for by Items 11 (authorization or issuance of securities otherwise than for exchange), 13 (financial and other information relating to proposals under Item 11 or 12 (modification or exchange of securities)) and 14 (mergers, consolidations, acquisitions and similar matters) must be provided when security holders are asked to authorize the issuance of additional securities to be used to acquire another specified company when there will be no separate opportunity to vote on the acquisition, even when the securities will be sold in a public offering for cash to finance the transaction.

C&DI 151.01 revises the prior interpretation to provide that Note A to Schedule 14A would not apply in such a situation if the registrant has alternative means for fully financing the acquisition (such as available credit under an executed credit agreement in the full amount of the acquisition consideration) and may choose to use those alternative financing means instead of using the proceeds from the sale of common stock in a public offering. However, if the registrant expects to use the cash proceeds from the public offering to pay any material portion of the consideration for such acquisition, then Note A would apply, and information called for by Items 11, 13 and 14 of Schedule 14A would need to be provided if security holders are asked to authorize the issuance of additional securities for the public offering.

Question 161.03

Telephone Interpretation 29 stated that, if a New Plan Benefits Table is required pursuant to Item 10(a)(2) (compensation plans) to Schedule 14A, all of the individuals and groups for which award or benefit information is required should be listed (including those for which the amount to be reported is "0").

C&DI 161.03 clarifies that, in addition to listing in a New Plan Benefits Table required pursuant to Item 10(a)(2) to Schedule 14A all of the individuals and groups for which award and benefit information is required, even if the amount to be reported is "0," a registrant may, alternatively, choose to identify any individual or group for which the award and benefit information to be reported is "0" through narrative disclosure that accompanies the New Plan Benefits Table.

Question 163.01

Telephone Interpretation 19 stated that a proxy statement requesting security holder approval of the elimination of preemptive rights involves the modification of a security for purposes of Item 12 (modification or exchange of securities) of Schedule 14A (and may be tantamount to creation of a new security, depending on the facts and circumstances, thereby raising an issue regarding Securities Act registration absent an exemption) and that, accordingly, the financial statement requirements of Item 13 (financial and other information relating to proposals under Items 11 (authorization or issuance of securities otherwise than for exchange) or 12) would apply.

C&DI 163.01 simplifies the prior interpretation to state that a proxy statement seeking security holder approval for the elimination of preemptive rights from a security involves a modification of that security for purposes of Item 12 of Schedule 14A and that, accordingly, financial and other information would be required in the proxy statement to the extent required by Item 13 of Schedule 14A. The new interpretation removes the prior express statement that such an elimination of preemptive rights may amount to the creation of a new security, which may, in turn, require Securities Act registration. However, registrants and their advisors should continue to carefully consider whether modifications of security holder rights are significant enough to constitute the creation of a new security for purposes of the Securities Act.

Technical Revisions

Question 126.04

Telephone Interpretation 15 stated that, since 1992, registrants have been able to solicit immediately upon the filing of a preliminary proxy statement/prospectus, rather than waiting 10 days pursuant to Rule 14a-6(a) to file a definitive proxy statement, as long as no proxy card is circulated. Telephone Interpretation 15 noted that, because a vote on the transaction described would amount to an investment decision with respect to the securities being registered, no proxy card could be sent until after the Form S-4 registration statement became effective and the final prospectus was furnished.

C&DI 126.04 simplifies the interpretation and modernizes it to reflect the preliminary communications framework of the Regulation M-A adopting release, SEC Release No. 33-7760 (October 22, 1999). The revised interpretation clarifies that Exchange Act Rule 14a-4(f) prohibits the delivery of proxy cards, unless the security holders concurrently or previously received a definitive proxy statement filed with the SEC. Further, the revised interpretation notes that, because a vote on the transaction described also would amount to a sale of the securities being registered, no proxy card can be sent until after the Form S-4 is declared effective and the final prospectus has been furnished to security holders.

Question 126.05

C&DI 126.05 updates prior Telephone Interpretation 16 and clarifies that an additional communication relating to a transaction sent by a registrant to security holders, after a registration statement on Form S-4 that contains the proxy statement disclosure has been filed and declared effective, should be filed as other soliciting material pursuant to Rule 14a-6(b) no later than the date it is first sent or given to security holders. The revised interpretation specifically emphasizes filing pursuant to Rule 14a-6(b), rather than Rule 14a-12, because the communication was sent after the furnishing of the definitive proxy statement.

Question 158.01

Telephone Interpretation 20 stated that, when a registrant holds a special meeting to elect one new person to its board of directors, following an annual security holder meeting three months prior at which incumbent directors were elected and will not be up for re-election at the special meeting, the proxy materials for the special meeting have to include the information required by Items 6 (voting securities and principal holders thereof) and 7 (directors and executive officers) of Schedule 14A for the incumbent directors.

C&DI 158.01 clarifies that, under such circumstances, the proxy materials for the special meeting have to include the information required by Items 7 (directors and executive officers) and 8 (compensation of directors and executive officers) of Schedule 14A for the incumbent directors. This revision effectively updates only references in the prior interpretation: the subject matter of Items 6, 7 and 8 has remained generally the same.

Question 158.03

Telephone Interpretation 21 stated that, in a situation where B is to be merged into A in a Rule 145 transaction, where (1) B's security holders will be voting to approve the proposed transaction and will become security holders of A, (2) A's security holders are not voting on the proposed transaction, and (3) three of B's directors will become directors of A, pursuant to Note A to Schedule 14A, the Form S-4 should contain the information required by Items 6 and 7 of Schedule 14A as to the A directors.

C&DI 158.03 clarifies that, under such circumstances, the Form S-4 should contain the information required by Items 7 and 8 of Schedule 14A as to the A directors. This revision updates Item references as discussed in connection with C&DI 158.01 above.

Going Forward

The Division currently is in the process of updating other previously published interpretations relating to the proxy rules and will publish any revised or new interpretations in these proxy C&DIs going forward.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions